The 1995 Florida Legislature dramatically transformed Florida's partnership law by enacting the Florida Revised Uniform Partnership Act (FRUPA or the Revised Florida Act) and by authorizing registered limited liability partnerships (known as RLLPs or LLPs) in Florida.[1]
In 1994, the National Conference of Commissioners on Uniform State Laws (NCCUSL) approved a final revision of the Uniform Partnership Act (RUPA or the Revised Uniform Act).[2] Although dramatically different in many ways from the original Uniform Partnership Act (UPA), RUPA is an evolution of traditional partnership law rather than a radical departure from the past. Florida was the fifth state[3] to adopt RUPA,[4] to which it made relatively few changes.
Although enacted as a part of the same bill, the limited liability partnership provisions were not part of RUPA.[5] Despite their fundamentally different character, limited liability partnerships have swept the nation in the past four years.[6] An LLP is simply a general partnership except that, by virtue of the statutory LLP provisions, the partners have no personal liability, as partners, for certain debts and obligations of the partnership. The LLP provisions usually amend the state's basic partnership act,[7] but in a few states, including Florida, they are separate from, but operate in conjunction with, the state's partnership act.[8]
After eighty years of nearly uniform and virtually unchanged partnership law, the recent passage of these two laws has ushered in a truly new era of partnership jurisprudence, both in the United States and in Florida. This Article will explain the major changes in partnership law wrought by the Revised Florida Act, identify the Florida nonuniform provisions,[9] and consider the meaning and significance of Florida's limited liability partnership legislation.
Under the Revised Florida Act, as in the UPA, a partnership is defined as an association of two or more persons to carry on as co-owners a business for profit, except an association formed under any other statute (such as a corporation or a limited liability company).[10] As under the UPA, no filing is required to form a partnership.[11] Thus, partnership remains the residual form of business association under FRUPA, which may result in a so-called "inadvertent partnership." In stating that a partnership is formed, "whether or not the persons intend to form a partnership," no substantive change is intended since the FRUPA formulation codifies UPA case law which holds that the requisite intent to the formation of a partnership is not the subjective intention to be partners, but rather whether the parties intended "to carry on as co-owners a business for profit."[12]
One important change is intended, however. Limited partnerships are not "partnerships" within the meaning of the Revised Florida Act inasmuch as they are formed under the Revised Uniform Limited Partnership Act (RULPA).[13] Nevertheless, FRUPA will continue to govern limited partnerships because RULPA itself so requires "in any case not provided for" in RULPA.[14]
The Revised Florida Act provides three rules for determining whether a partnership has been formed.[15] As under the UPA, a partnership is presumed to exist if profits from a business are shared, unless the profit share has been received in payment of a debt, or as wages, rent, or under any other enumerated relationship.[16] Profit sharing by joint owners of property does not by itself establish a partnership,[17] nor does the sharing of gross returns.[18]
Although the law merchant had long accorded entity treatment to partnerships, the common law did not recognize partnerships as legal entities, but conceptualized them as the aggregate of the partners.[19] The UPA was somewhat ambivalent about the nature of a partnership,[20] but the aggregate notion continued to dominate legal analysis.[21] The Revised Florida Act explicitly states that "a partnership is an entity distinct from its partners,"[22] greatly simplifying, among other things, the continued existence of the partnership despite the departure of a partner.[23] One important attribute of the aggregate theory is retained: partners remain jointly and severally liable for all of the partnership's debts and obligations.[24] More importantly, partnerships will continue to be accorded pass-through treatment for federal income tax purposes, despite their entity characterization under state law.[25]
The Revised Florida Act continues in the partnership tradition that most of the legal rules are not mandatory and can be varied by agreement of the partners.[26] Thus, with few exceptions, FRUPA affords great flexibility by allowing the partners to custom tailor the relationship in the partnership agreement.[27] The statute is the default contract to the extent the partnership agreement does not provide otherwise.[28]
There are only nine exceptions.[29] Florida adds a tenth exception.[30] One exception[31] continues the UPA rule that a partner may withdraw voluntarily from the partnership at any time, even in contravention of the partnership agreement.[32] Other exceptions proscribe the complete elimination of a partner's fiduciary duties of care and loyalty and obligation of good faith and fair dealing, but permit the partners to vary contractually the standard of conduct required, if not unreasonable.[33] The final "exception," which provides that the rights of third parties under the Act may not be restricted in the partnership agreement,[34] is something of a misnomer; it simply restates the inherent limitation that only parties to a contract are bound by the contract.
Constrained only by these few exceptions, partners are free to arrange their internal affairs.[35] The Revised Florida Act provides an array of standard terms that may be "selected" by the parties without incurring further negotiating and drafting costs and that will be imposed on them if they fail to provide otherwise in their partnership agreement. There are advantages to using the standard language. To the extent that the Act's default rules satisfy the needs of the parties, the statutory regime is efficient. Furthermore, the meaning of standard terms will be less uncertain than unique contract terms drafted by the parties.[36]
The Act's default rules were drafted for a small, informal partnership, in which all of the partners are active and contribute both money and human capital. The Revised Uniform Act attempts to provide a body of default rules that are similar to those that would be crafted by partnership lawyers seeking to provide a commercially reasonable and efficient organizational structure. To the extent that a partnership differs from the paradigm or the parties' preferences diverge from the norm, different rules may be more appropriate.
One of the Revised Florida Act's major innovations is a regime of voluntary filed statements[37] containing certain basic information about a partnership, such as who has the authority to transfer or mortgage partnership real property.[38] The drafters of the Revised Uniform Act believed it likely that filing would become routine for many partnerships and would be required by sophisticated lenders because reliance on filed statements affords greater certainty in partnership transactions, at minimal cost and inconvenience.[39] That may not be the case in Florida because of a cumbersome nonuniform requirement[40] and the availability of a familiar alternative for many transactions.[41]
The drafters of RUPA contemplated that the filing of partnership statements would be similar to Uniform Commercial Code (UCC) filings. Filing would be statewide, probably in the office of the Secretary of State, whose only duty would be to index filed statements in the name of the partnership as indicated on the statement. Filing fees would be modest, and responsibility for the accuracy of the statement and determination of its legal effect would be left entirely to the parties.
The Revised Florida Act, while not mandating that all partnerships register with the Department of State,[42] nevertheless requires registration as a condition precedent to the filing of most partnership statements, including a statement of partnership authority.[43] Registration effectively increases the cost of partnership filings and may at times be intrusive. The filing fee for a registration statement is $50, while the fee for other statements is $25.[44] A certified copy of a filed statement, which is required for recording transfers of real property,[45] costs $52.50.[46] While those fees are modest with respect to a large transaction, they may discourage the routine use of statements by smaller partnerships.[47]
The Revised Florida Act's entity approach has greatly simplified the rules regarding the nature and transfer of partnership property. Discarding the UPA's confusing concept of tenancy in partnership, FRUPA provides simply, "Property acquired by a partnership is property of the partnership and not of the partners individually."[48]
As tenants in partnership, each partner is a co-owner with the other partners of an undivided interest in specific partnership property,[49] but without most of the usual incidents of ownership, such as the right to possess the property for non-partnership purposes[50] or the right to alienate the partner's interest in specific partnership property.[51] The change in theory is underscored further by the express negation of a partner's co-ownership of specific partnership assets: "Partnership property is owned by the partnership as an entity, not by the partners as co-owners. A partner has no interest that can be transferred, either voluntarily or involuntarily, in specific partnership property."[52] Only a partner's economic interest in the partnership as a whole is transferable.[53] As under the UPA, that interest is conclusively deemed to be personal property, without regard to the nature of specific partnership property.[54]
Another advantage of the entity theory is the certainty of ownership afforded partnership property and the rules regarding its transfer. The Revised Florida Act draws a distinction between property acquired "in the name of the partnership" and other partnership property. Property acquired in the name of the partnership is conclusively deemed to be partnership property,[55] and the rules regarding the transfer of property held of record by the partnership are explicit,[56] enhancing reliance on record title for the benefit of both partners and third parties. Moreover, FRUPA expressly extends the protection of record title to personal property acquired in the name of the partnership.[57] Property is acquired "in the name of the partnership" by a transfer to: 1) the partnership in its name or 2) one or more partners in their capacity as partners, if the name of the partnership is indicated in the instrument of transfer.[58] In either case, the partnership's interest can be ascertained from the applicable title records or instruments transferring title.
Property not acquired in the name of the partnership may also be partnership property. Property acquired in the name of one or more of the partners with an indication in the instrument of conveyance of either 1) the transferee's "capacity as a partner" or 2) "the existence of a partnership but without an indication of the name of the partnership" is deemed conclusively to be partnership property.[59] Such conveyances evidence the partners' intention that property so acquired is partnership property, and third parties are alerted by the record to a possible partnership interest in the property.
Furthermore, as under prior law,[60] property that is acquired in the name of one or more of the partners without any record indication of the partnership's interest may nevertheless be partnership property, subject to two rebuttable presumptions: 1) property purchased with partnership assets is presumed to be partnership property;[61] and 2) property purchased without use of partnership assets is presumed to be the partner's separate property, even if used for partnership purposes.[62] Ultimately, it is a question of fact whether the partners intended that property acquired in the name of a partner, without any indication of the partnership's interest, would belong to the partnership or to the named partner individually.[63]
The Revised Florida Act does not alter a partner's general agency authority to bind the partnership, with one very important qualification.[64] The Act provides that, subject to the effect of a statement of partnership authority, a partner has both actual and apparent authority to bind the partnership by acts, including the execution of an instrument in the partnership name, in the ordinary course of business.[65] Statements of authority aside, partners may limit a partner's actual authority[66] even in ordinary course matters or they may expand a partner's actual authority by authorizing acts beyond the ordinary course of business.[67] If a partner's actual authority to act in the ordinary course of the partnership's business is limited, the partnership may still be bound by the partner's apparent authority unless the other party "knew or had received a notification"[68] of the partner's lack of authority.[69]
Promoting reliance on the record chain of title to property held in the name of the partnership (including titled personal property, as well as real property), FRUPA clarifies the UPA's rules[70] governing the transfer of partnership real property by providing that, absent a filed statement of authority, every partner has the authority to transfer property held in the name of the partnership.[71] To avoid a partner's unauthorized transfer and recover the property, the partnership must prove that the partner lacked both actual and apparent authority.[72]
Partnership property held in the name of one or more partners may be transferred by an instrument of transfer executed by partners in whose name the property is held, whether or not there is a record indication of their capacity as partners or of the existence of a partnership.[73] To recover such property transferred without authority, the partnership must prove that the partner executing the conveyance lacked authority, actual or apparent, and, if there was no record indication of a possible partnership interest in the property, that the transferee knew (or had received a notification) that the property was partnership property.[74]
The UPA provides no convenient means of establishing on the record that partners have the authority to execute instruments of conveyance on behalf of the partnership. Therefore, costly and cumbersome practices to evidence partnership authority were developed, especially with respect to the transfer of real property.[75] The most important goal of the Revised Florida Act's new system of filed statements, and particularly the statement of partnership authority, is to provide a more convenient, efficient, and reliable means of establishing partners' record authority with respect to the transfer of real property held in the name of the partnership.[76]
Under FRUPA, a partnership may file a statement of partnership authority naming those partners authorized to execute an instrument transferring real property held in the name of the partnership[77] and specifying the authority, or limitations on the authority, of some or all of the partners to enter into other transactions on behalf of the partnership.[78] Under the Revised Florida Act, a partnership may not file a statement of authority unless the partnership has previously filed a registration statement with the Department of State.[79] The registration statement must include the names and mailing addresses of all of the partners or the name and address of an agent appointed by the partnership who will maintain a partners' list and, on request, make it available to any person showing good cause.[80]
To be effective, any statement filed on behalf of the partnership must be executed by at least two partners.[81] A copy of all statements filed must be sent promptly to every non-filing partner and to any other person named as a partner in the statement.[82] To be effective with respect to real property, a certified copy of the statement[83] must be recorded in the office for recording transfers of real property.[84] Statements may be amended or canceled,[85] and the accuracy of any statement may be denied.[86]
The legal effect of a statement of authority differs markedly depending on the nature of the transaction. Most significantly, the Revised Florida Act affords almost absolute protection to both the partnership and transferees with respect to the authority of a partner to transfer real property held in the name of the partnership.[87]
First, a grant of authority to one or more of the partners to transfer real property held in the name of the partnership is conclusive in favor of a purchaser for value unless either 1) a limitation on that authority is then of record or 2) the purchaser has knowledge of the partner's actual lack of authority.[88] Since every partner has at least apparent authority to transfer real property in the ordinary course of the partnership's business, a statement of authority is most crucial in the transfer of partnership realty outside the ordinary course of business. In that situation, absent record authority, a transferee has the burden of proving that the partner had actual authority to execute the instrument of conveyance.[89]
Not only is the partnership bound by a recorded grant of authority to transfer real property held in the name of the partnership, but third parties are deemed conclusively to know of a properly recorded limitation on a partner's authority to transfer such property.[90] In this way, a partnership can protect itself from unauthorized property transfers by rogue partners acting within their apparent authority. Absent a recorded limitation, every partner has apparent authority to transfer partnership property in the ordinary course of the partnership's business, unless the transferee knows (or has received a notification) of a partner's lack of authority.[91] In effect, a recorded limitation of authority is conclusive as to the whole world's knowledge of the limitation.
Like grants of authority, recorded limitations are given binding effect only with respect to a partner's authority to transfer real property held in the name of the partnership.[92] The authority of a partner to transfer partnership real property not held in the name of the partnership is entirely unaffected by recorded statements.[93]
With respect to all transactions other than the transfer of real property, statements of authority are accorded more limited effect. A filed grant of authority is generally binding on the partnership, while a limitation on authority, in and of itself, has no legal effect.[94] Specifically, a grant of authority is conclusive in favor of a person who gives value without actual knowledge to the contrary, absent a recorded limitation.[95] Thus, the partnership is bound by a filed grant of extraordinary authority authorizing a partner to act beyond the usual course of business, unless the other party knows that the partner actually lacks such authority. A third party may rely on such a grant and has no duty to inquire further. However, third parties are not "deemed to know of a limitation" (apart from real property transactions) on the authority of a partner "merely because the limitation is contained in a filed statement" of authority.[96] Therefore, despite a limitation contained in a filed statement of authority, a partner continues to have at least apparent authority to act for the partnership in the ordinary course of the partnership's business, unless the other party actually knows (or has received a notification) of the limitation.[97] A third party may, however, actually learn of a filed limitation and thus know of the partner's lack of authority.
The Florida UPA has long contained a nonuniform provision intended to simplify establishing of record the authority to transfer real property held in the partnership name.[98] Despite the enactment of FRUPA's comprehensive system of recorded statements and the virtually absolute effect of those statements in determining of record a partner's authority to transfer real property held in the name of the partnership, the old Florida provision has been retained. Thus, partnerships and their transferees have a choice as to the means used to establish the authority of a partner to transfer real property held in the name of the partnership.
As amended and relocated in section 689.045(3), Florida Statutes,[99] the alternative provision reads as follows:
When title to real property is held in the name of a limited partnership or a general partnership, one of the general partners may execute and record, in the public records of the county in which such partnership's real property is located, an affidavit stating the names of the general partners then existing and the authority of any general partner to execute a conveyance, encumbrance, or other instrument affecting such partnership's real property. The affidavit shall be conclusive as to the facts therein stated as to purchasers without notice.
Resort to section 689.045 has one distinct advantage: an affidavit may be filed and given effect even if the partnership is not registered with the Department of State. Filing an affidavit saves the cost and inconvenience of registration, as well as the higher fees for filing and recording statements under FRUPA. Moreover, Florida real property lawyers are undoubtedly more familiar and comfortable with section 689.045.
On the other hand, FRUPA's system of statements is both more precise and more comprehensive. Section 689.045 does not seem to contemplate the recording of a limitation on authority, nor does it provide for amendment or cancellation or for a statement of denial if another partner believes the affidavit to be in error. And were such an inconsistent affidavit recorded, section 689.045 does not provide for a resolution of the conflict between them. The precise effect to be accorded a section 689.045 affidavit is also unclear, especially the conclusive effect, under FRUPA, of a grant of authority "as to purchasers without notice."[100] Finally, there is no provision governing the interplay between a section 689.045 affidavit and the FRUPA regime, such as a recorded limitation on authority under FRUPA that conflicts with the authority conferred by a section 689.045 affidavit.
Because of this uncertainty, which is anathema with respect to the title to real property, it seems likely that title companies and lenders will prefer the FRUPA regime, and thus it may soon eclipse continued reliance on section 689.045 affidavits. Also, as RUPA gains national adoption, foreign purchasers and lenders will undoubtedly insist on the FRUPA regime because it will be better understood.[101]
One of the most controversial provisions in RUPA is the provision governing the fiduciary duties of partners.[102] That controversy is more likely attributable to RUPA's attempt to articulate those duties clearly, rather than to any substantive changes wrought by the new Act. The UPA says little about a partner's fiduciary duties,[103] and most of the present law regarding a partner's fiduciary duties was judicially imported from the law of agency.[104] Thus, the substantive rules developed by the courts are not completely uniform and, perhaps more telling to the current debate, have not been articulated using a uniform or consistent analytical framework. For example, in the oft-cited case of Meinhard v. Salmon,[105] Justice Cardozo eloquently explained:
[Partners] owe to one another . . . the duty of finest loyalty. Many forms of conduct permissible in a workaday world for those acting at arm's length, are forbidden to those bound by fiduciary ties. A trustee is held to something stricter than the morals of the market place. Not honesty alone, but the punctilio of an honor the most sensitive is then the standard of behavior.
Of course, partners are not trustees, in the strict sense, and despite the colorful rhetoric the holding of the case was quite modest. Salmon, the managing partner of a term partnership that leased and operated a commercial property, was held to have breached his duty to Meinhard, a passive partner who provided the financing, by negotiating a lease renewal on his own behalf without notifying Meinhard and affording him the opportunity to compete with Salmon for the new lease.[106] Leaving open the question of whether Salmon could seek the lease renewal for himself, the court held he must nevertheless disclose to Meinhard his intention not to seek its renewal on the partnership's behalf.[107]
Contractarians argue that broad and open-ended judicial assertions of fiduciary responsibility are an open invitation for disappointed partners to attempt to persuade sympathetic judges to apply personal notions of fairness as a basis for renegotiating partnership deals.[108] Instead, contractarians argue for a statutory restraint of judicial discretion, with an eye to discouraging litigation that would undo the parties' deal. Moreover, contractarians contend that whatever fiduciary duties are adopted should be only default rules, which the parties may waive in their entirety.
More traditional commentators, on the other hand, urge a more complete statement of fiduciary principles and statutory recognition of the judicial role of providing ex post review of allegedly opportunistic or unfair conduct.[109] For them, partnership is fundamentally relational and fiduciary in character, not merely contractual. Therefore, partners' fiduciary duties are immutable and cannot be reduced by the parties below a fundamental core, much less be waived in their entirety.
Not surprisingly, RUPA and the Revised Florida Act are something of a compromise.[110] First, FRUPA section 404(1)[111] acknowledges the fiduciary nature of the partnership relationship by characterizing a partner's duties as "fiduciary." That section then limits the extent of those duties by providing that "the only fiduciary duties a partner owes to the partnership and the other partners are the duty of loyalty and the duty of care as set forth in subsections (2) and (3)."[112] The intent of that provision is to reign in, by statutory edict, the propensity of some judges to tailor new fiduciary duties from whole cloth.[113] This point obviously reflects a contractarian impulse.
First and most fundamentally, the Revised Florida Act makes clear that a partner is not a trustee and is not held to the same standards as a trustee. Section 404(5) provides that a partner does not violate his fiduciary duty "merely because the partner's conduct furthers the partner's own interest."[114] Thus, a partner's rights as an owner and principal in the enterprise may be balanced against his duties as an agent and fiduciary in applying the duty of loyalty.[115]
Section 404(2) of the Revised Florida Act sets forth three specific rules that constitute a partner's duty of loyalty to the partnership and the other partners:
(a) A partner must account for any property, profit, or benefit derived by the partner from the partnership business or the use of partnership property, including the appropriation of a partnership opportunity;[116]
(b) A partner must not deal with the partnership as or on behalf of an adverse party;[117] and
(c) A partner must not compete with the partnership.[118]
Despite the broad language often used by judges in the formulation of the duty of loyalty under prior law, the result will almost invariably be the same under one of FRUPA's three rules. Thus, any substantive change wrought by the Revised Florida Act is more apparent than real. On the other hand, FRUPA's enhanced specificity in the articulation of the rules will sharpen the legal analysis.
The Revised Uniform Act provides expressly that the three loyalty rules are exclusive.[119] That provision was intended to prevent further judicial expansion of the duty of loyalty. The Revised Florida Act expressly provides to the contrary, stating that "a partner's duty of loyalty . . . includes, without limitation," the three enumerated duties.[120] The Florida drafters were concerned that the RUPA text too severely narrowed the duty of loyalty as fashioned by the courts over the years and therefore expressed a preference toward continued judicial development.[121]
The partnership agreement may not eliminate the duty of loyalty, but may "identify specific types or categories of activities that do not violate the duty of loyalty, if not manifestly unreasonable."[122] Thus, FRUPA affords the parties substantial leeway in drawing their own lines regarding the duty of loyalty, but ensures an irreducible core of fiduciary responsibility.[123] The specificity requirement prevents broad waivers and forces the partners to think about their consent to a co-partner's self-interest in terms of the types and categories of activities that are condoned. That specific recognition should also make it easier for courts to ascertain the intention of the parties in the event of litigation.[124] The "unless manifestly unreasonable" trump card gives courts a handle for refusing to enforce an unconscionable exculpatory clause. The mere possibility of judicial invalidation, by itself, should discourage overreaching by a partner with superior bargaining power or sophistication.
The Revised Florida Act also clarifies the right of partners under general law to consent to another partner's known prior or anticipated violation of a legal duty and to waive the right to redress for the violation.[12]5 After full disclosure of all material facts, a partner's specific self-interested act or transaction, not otherwise permitted by the Act or the partnership agreement, may be authorized or ratified by the other partners.[126] Consent must be unanimous, unless otherwise specifically provided in the partnership agreement.[127]
The UPA is silent regarding a partner's duty of care, and there is a dearth of judicial authority as to the existence of such a duty.[128] The Revised Florida Act explicitly provides that a partner owes a duty of care to the partnership[129] and the other partners. This duty "is limited to refraining from engaging in grossly negligent or reckless conduct, intentional misconduct, or a knowing violation of law."[130] That standard of care reflects the policy that partners accept, as a cost of doing business, the risks of each other's ordinary negligence and should, therefore, share equally in the financial consequences.[131] The duty of care is immutable and cannot be waived in its entirety, but the standard of care may be reduced in the partnership agreement, if the reduction is not unreasonable.[132]
In addition to the fiduciary duties of care and loyalty, which are rooted in the relational nature of partnership, the Revised Florida Act expressly recognizes an "obligation" of good faith and fair dealing, an obligation which reflects a partnership's contractual nature.[133] Section 404(4) provides that "[a] partner shall discharge the duties to the partnership and the other partners under this [A]ct or under the partnership agreement and exercise any rights consistently with the obligation of good faith and fair dealing." That is not an independent obligation, but is ancillary to a partner's discharge of every duty and exercise of every right, contractual or statutory.
"Good faith and fair dealing" has no well-established meaning. While "good faith" suggests a subjective element, "fair dealing" connotes an objective component. The concept is not defined in the Act, and its precise meaning is left to judicial development.[134] The obligation is immutable and cannot be eliminated in the partnership agreement, but the agreement may prescribe "standards by which the performance of the obligation is to be measured if the standards are not manifestly unreasonable."[135]
The Revised Florida Act makes it clear that a partner may lend money to and transact other business with the partnership, as to which the partner has the same rights and obligations as a non-partner.[136]
Although not characterized as a fiduciary duty, the Revised Florida Act continues the UPA rule that all partners have full access to the partnership's books and records. This right extends to former partners with respect to books and records pertaining to the time they were partners.[137] Moreover, under FRUPA, a partner's right of access to the books and records is virtually absolute[138] and may not be unreasonably restricted in the partnership agreement.[139]
The Revised Florida Act also continues a partner's right to obtain, on demand, any information concerning the partnership's business and affairs.[140] Under FRUPA, however, each partner and the partnership must also furnish to every partner, "[w]ithout demand, any information concerning the partnership's business and affairs reasonably required for the proper exercise of the partner's rights and duties under the partnership agreement or this [A]ct."[141] That requirement is new and imposes on the partnership and partners individually an affirmative disclosure obligation.[142] The precise scope and meaning of the duty is left to judicial development. Under FRUPA, neither of these information rights may be unreasonably restricted in the partnership agreement.[143]
The most dramatic changes effected by the Revised Florida Act concern the rules governing a partner's departure. Under the UPA, the departure of a single partner results inescapably in the "dissolution" of the partnership. Even if the business is continued by the remaining partners, a technical dissolution cannot be avoided.[144] Dissolution is the natural consequence of an aggregate theory of partnership. Moreover, absent agreement to the contrary, upon dissolution any partner has the right to have the business liquidated, its debts paid, and the surplus, if any, distributed in cash.[145] The result is a fragile form of business organization whose instability cannot be completely overcome by agreement.
The Revised Florida Act greatly simplifies the rules governing partnership breakup and enhances the stability of the enterprise. By embracing the entity theory of partnership, FRUPA invites a change in the fundamental notion that any partner's departure necessarily causes a dissolution of the partnership. To the contrary, under FRUPA, not every departure, or "dissociation," causes a "dissolution" and winding up, that is, a liquidation of the partnership business and the termination of the partnership entity.
The entity theory provides the conceptual framework for a continuation of the partnership business by the remaining partners. A partner's departure need have no effect on the continued existence of the partnership entity. If the partnership is continued, the dissociated partner's economic interest will be bought out in a manner similar to the buyout of a departing shareholder's shares. If the partnership entity is not to continue, its business and affairs will be wound up.
That does not mean that a partner may be compelled to remain a partner. As under the UPA,[146] every partner has the power to dissociate at any time by express will, even in violation of the partnership agreement.[147] The Revised Florida Act continues the traditional policy that the mutual agency authority of partners, together with their personal liability for all partnership obligations, is so extraordinary that a person's status as a partner should always be terminable at will.
With one exception,[148] partners under FRUPA have complete freedom to decide what constitutes an event of dissociation. The partnership agreement may not abrogate the power of a court to expel a partner: 1) for misconduct that adversely affects the business; 2) for willful or persistent breach of fiduciary duty or of the partnership agreement; or 3) for conduct which makes it impracticable to carry on the business with that partner.[149] The Revised Florida Act sets forth the events that cause dissociation in the absence of a partnership agreement to the contrary.[150] Included are most of the traditional causes of "dissolution" under the UPA,[151] such as a partner's death,[152] incompetence,[153] bankruptcy,[154] or expulsion.[155]
The Revised Florida Act continues the UPA concept of wrongful dissociation,[156] but simplifies and clarifies the applicable rules. Under FRUPA, a partner's dissociation is "wrongful" only if it is in breach of an express provision of the partnership agreement[157] or, in a term partnership, if the partner prematurely withdraws by express will in violation of the partnership agreement before the expiration of the term or the completion of the undertaking,[158] is expelled,[159] or is dissociated by becoming a debtor in bankruptcy.[160] A partner who wrongfully dissociates is liable to the partnership and to the other partners for damages caused by the dissociation.[161] The grounds for wrongful dissociation may be varied in the partnership agreement, as may the consequences, or the concept may be abolished entirely.
Under FRUPA, whether the partnership entity is to be continued or dissolved upon a partner's dissociation is left almost completely to the agreement of the partners. The only significant constraint on the continuation of a partnership by agreement is a partner's immutable right to seek a judicial dissolution and winding up of the partnership.[162]
The partnership agreement may specify what events will cause a winding up of the business.[163] To the extent that the partnership agreement does not provide otherwise, the Act sets forth the default events of dissolution.[164] For a term partnership,[165] those events include the expiration of the term or the completion of its undertaking,[166] as well as the express will of all the partners.[167]
FRUPA also provides for the so-called "reactive" dissolution and winding up of a term partnership following a partner's dissociation by death, incompetence, bankruptcy, or other specified cause or wrongful dissociation in breach of the partnership agreement.[168] In those events, the partnership is dissolved and its business must be wound up unless, within ninety days, a majority in interest of the remaining partners agree to continue the partnership.[169]
The Revised Uniform Act continues the UPA rule that a partnership at will is dissolved and must be wound up upon the express will of any partner to withdraw.[170] That was one of the most controversial issues in the drafting of the new Act, and many thought that the decision to wind up the business should be left to a majority of the remaining partners.[171] Considerable difference of opinion (but no empirical evidence) existed as to the relative likelihood of opportunistic abuse by the majority or the minority. Ultimately, the drafters decided to retain the traditional rule giving every partner in an at-will partnership the right to have the business wound up. It is only a default rule, and the partnership agreement may provide that a departing partner is not entitled to have the business wound up but must be bought out by the remaining partners. The Revised Florida Act provides likewise.[172]
"Dissolution" is merely the beginning of the winding up process.[173] The partnership entity continues after dissolution, although the scope of its business is limited to the purpose of winding up its affairs.[174] But winding up is not an irreversible process. At any time before the winding up is completed, the partners may agree not to wind up and terminate the partnership, but rather to resume carrying on the partnership's business.[175] After dissolution, the consent of all the partners, including any rightfully dissociating partner, is required to resume the business, since, in effect, the partners are waiving their right to have the assets sold and the liabilities satisfied.[176] If all the partners consent, the partnership resumes carrying on its business as if dissolution had never occurred, and any liability incurred by the partnership after the winding up began is determined as if there had been no dissolution.[177] The rights of third parties who act in reliance on the dissolution, without knowledge (or a notification) of the waiver, are protected.[178]
If a partner's dissociation does not result in a dissolution and liquidation of the partnership business, the dissociated partner's interest in the partnership must be purchased by the partnership or the remaining partners.[179] If the partnership agreement does not provide otherwise, and the parties cannot agree ex post on the amount the dissociating partner is to receive or on the other terms and conditions of the buyout, the FRUPA default rules apply.
Under the default rules, the buyout price is the amount that would have been distributable to the dissociating partner if, on the date of dissociation, the partnership's assets and business had been sold, its liabilities satisfied, and the surplus distributed.[180] Thus, the buyout price is determined by a hypothetical liquidation as of the date of dissociation. The Act specifically provides that the hypothetical sale price of the business is the greater of the going concern value of the entire business without the dissociating partner or the liquidation value of its assets.[181] In winding up the partnership's business, all of its liabilities must be paid before any surplus is distributed to the partners;[182] thus, the buyout price is the net of all known liabilities.[183] Damages for wrongful dissociation[184] and all other amounts owing from the dissociated partner to the partnership, whether or not then due, are offset against the buyout price.[185] Interest on the buyout price must be paid from the date of dissociation to the date of payment.[186] If the parties cannot agree on the value of the partnership's business, and thus the buyout price of the partner's interest in the partnership, FRUPA provides rather detailed procedures for obtaining a judicial determination of the buyout price and the payment terms.[187]
Briefly, the statutory default procedure requires the dissociated partner to make a written demand for payment.[188] If the parties cannot agree on the buyout price within 120 days thereafter, the partnership must tender payment in cash of the amount it estimates to be the price, subject to any offsets provided by the Act.[189] The partnership must also provide the dissociated partner with a list showing the firm's assets and liabilities as of the date of dissociation, as well as the most recent balance sheet and income statement (if any), an explanation of how the estimated buyout price was calculated, and written notice that the dissociated partner has 120 days to commence an action to determine the buyout price or be bound by the amount of the tendered payment.[190] If suit is brought, the court will determine the buyout price of the dissociated partner's interest, any offsets due under the Act, and accrued interest.[191] The court may also assess attorney's fees and expenses, such as appraiser's fees, if the court finds that either party acted arbitrarily, vexatiously, or not in good faith; such conduct would include the partnership's failure to tender payment or otherwise comply with the Act's requirements.[192]
In addition to the buyout price for a dissociated partner's interest in the partnership, FRUPA provides that the partnership must indemnify the dissociated partner against all partnership liabilities.[193] The indemnification covers all liabilities, whether incurred before or after the partner's dissociation, except liabilities incurred by the partner after his dissociation and without actual authority but which are binding on the partnership because of the partner's lingering apparent authority.[194] Indemnifying a dissociated partner is appropriate because the buyout price of the dissociated partner's interest is based on the net value of the partnership's assets and business, less liabilities, and as between the partners he should not have to pay again if sued by a creditor.
The Revised Florida Act provides comprehensive rules for winding down a partner's lingering apparent authority and personal liability upon dissociation. The Act also authorizes the filing of a statement of dissociation that is deemed to be constructive notice of a partner's dissociation and significantly limits his lingering authority and liability.
Under FRUPA, a dissociated partner has apparent authority for up to one year after dissociation to bind the partnership by an act which apparently carries on the partnership's business in the ordinary course.[195] Under the Revised Uniform Act, however, a dissociated partner's apparent authority may continue for as long as two years.[196] The partnership is bound only if at the time of the transaction the other party reasonably believed that the dissociated partner was then a partner and the other party had no notice of the partner's dissociation.[197] Thus, there must have been reasonable reliance on the partner's continued status as a partner. As a practical matter, the other party must previously have transacted business with the dissociated partner. The partnership can attempt to cut off the dissociated partner's apparent authority by immediately sending a notification of his dissociation to all known parties who had previously dealt with him. The dissociated partner is liable to the partnership for any damage arising from an obligation incurred by the partner after his dissociation.[198]
A partner's dissociation does not of itself discharge his liability for partnership obligations incurred before dissociation.[199] Under FRUPA, a dissociated partner is not, however, liable for partnership obligations incurred after his dissociation, except those incurred within one year of the partner's dissociation if the other party had no notice of the dissociation and reasonably believed the dissociated partner was still a partner.[200] Under the Revised Uniform Act, a dissociated partner's exposure for new obligations is two years,[201] similar to the duration of his lingering apparent authority. A dissociated partner can, however, limit his lingering liability for new partnership obligations to parties with whom he has dealt as a partner by sending them an immediate notification of his dissociation.
The Revised Florida Act provides a more efficient and reliable means of cutting off a dissociated partner's lingering apparent authority and personal liability for new partnership obligations, however. Either the dissociated partner or the partnership may file a statement of dissociation,[202] which operates as a limitation on the partner's record authority under the usual rules applicable to record authority.[203] A properly recorded statement of dissociation in the real property records conclusively terminates the dissociated partner's authority to transfer real property held in the name of the partnership.[204] Filing a statement with the Department of State does not limit the dissociated partner's apparent authority in any other type of transaction unless the other party to the transaction actually knows of the partner's dissociation.[205]
Contrary to the usual rule governing the effect of a filed limitation of authority, FRUPA provides that, for the purposes of the rules governing a dissociated partner's lingering apparent authority[206] and personal liability for new partnership obligations,[207] third parties are deemed conclusively to have notice of the partner's dissociation ninety days after the statement of dissociation is filed.[208] Thus, a dissociated partner's lingering apparent authority and personal liability for new partnership obligations can be absolutely terminated in ninety days by filing a statement of dissociation. That gives both the partnership and the dissociated partner a strong incentive to file a statement of dissociation. Moreover, as an exception to the general rule in Florida, a statement of dissociation may be filed even if the partnership has not previously registered with the Department of State.[209]
While FRUPA's constructive notice regime for statements of dissociation provides benefits to partners and partnerships, it imposes a cost on third parties doing business with partnerships. That is because third parties must check the records of the Department of State at least every ninety days if they wish to rely on the apparent authority of a person known to have been a partner or if they are extending credit to the partnership on the strength of that person's personal credit.
The Revised Florida Act greatly clarifies the rules governing the rights and duties of the partners in winding up the partnership's business after an event of dissolution.
After dissolution, any partner may participate in winding up the partnership's business.[210] Winding up includes the sale of all partnership assets, either as a going concern or otherwise, payment or discharge of all partnership liabilities, and distribution of the surplus, if any, to the partners in accordance with their rights to distributions.[211]
Each partner is entitled to a settlement of all partnership accounts upon winding up the business.[212] In settling the accounts, the profits and losses that result from the liquidation of the partnership assets must be credited and charged to the partners' accounts.[213] A partner with a positive account balance will receive a final liquidating distribution in that amount, while a partner with a negative account balance must contribute the difference to the partnership.[214]
After an event of dissolution, the partnership continues only for the purpose of winding up its business,[215] and the scope of the partners' actual authority contracts accordingly.[216] A partner's usual apparent authority continues, however, if the other party to the transaction does not have notice of the dissolution.[217] A partner who, knowing of the event of dissolution, nevertheless incurs a partnership liability that is inappropriate for winding up the business is liable to the partnership for any damage caused.[218]
The partnership's exposure to liability for a partner's inappropriate obligation may be limited, however, by filing a statement of dissolution.[219] A filed statement of dissolution cancels a filed statement of authority,[220] and after ninety days third parties are conclusively deemed to have notice of the dissolution and, accordingly, of the limitation on the authority of all of the partners.[221]
Adoption of the entity theory also facilitates partnership conversions and mergers which, although now quite common, are fundamentally inconsistent with the aggregate theory. Not surprisingly, then, the UPA is silent on the subject. Article 9 of the Revised Florida Act provides much needed certainty as to the validity of such transactions and their legal effect on the rights and liabilities of the partners and the title to partnership property.
Article 9 is only a "safe harbor." Its requirements are neither mandatory nor exclusive,[222] and partnerships may be converted or merged in any other manner provided by law.[223] If the transaction conforms to the requirements of Article 9, the conversion or merger is valid and will enjoy the legal effect provided in the Act.[224] It is likely that Article 9 will be followed in most cases because it adds comfort to lawyers rendering opinion letters as to the validity and effect of such transactions.
The key procedural safeguard in the conversion of a partnership or limited partnership is the requirement that it be unanimously approved by all of the partners,[225] including limited partners.[226] Florida adds the requirement that all partners be promptly notified of a conversion to a limited partnership and provided a copy of the statutory section governing the conversion and the partners' liability for the converted partnership's obligations.[227] In light of the Act's concern over exposing a former limited partner to personal liability as a general partner of the converted partnership where the partner lacks knowing consent, it is strange that Florida does not impose a similar notice requirement on the conversion of a limited partnership to a general partnership.
The Revised Florida Act carefully spells out the extent to which a partner is liable for the partnership's obligations after conversion. A former general partner who becomes a limited partner remains personally liable for all obligations incurred before the conversion while he was a general partner.[228] That protects the rights of old partnership creditors who could look to the partners personally at the time credit was extended.
The newly minted limited partner may also be held personally liable for any new obligation incurred by the converted partnership within ninety days of the conversion, if the other party to the transaction reasonably believes that the limited partner is still a general partner.[229] That is a variation of the lingering liability rule applicable to a dissociated partner and, in effect, treats third parties dealing with the converted partnership as having constructive notice of a limited partner's new status ninety days after the conversion.[230] Thereafter, a limited partner's liability for the obligations of the converted partnership is the same as any other limited partner under the Florida Revised Uniform Limited Partnership Act.[231]
A limited partner who becomes a general partner as the result of a conversion is liable as a general partner only for those obligations of the converted partnership that are incurred after the conversion; he remains only limitedly liable for old obligations incurred before the conversion.[232]
Most fundamentally, the Revised Florida Act makes clear that a partnership or limited partnership that has been converted pursuant to Article 9 "is for all purposes the same entity that existed before the conversion."[233]
One of the primary advantages of a continuing entity theory is that no "transfer" of the converting partnership's assets and property is required, thereby avoiding unnecessary deeds or other costly documentation of the converted entity's title to the property. Accordingly, RUPA provides simply that "all property owned by the converting partnership or limited partnership remains vested in the converted entity."[234] Personal property of a converting partnership is so treated under FRUPA,[235] but the rule with respect to real property is different. Defying the logic of the entity theory and eschewing RUPA's simplicity, the Revised Florida Act provides: "Title to all real property owned by the converting partnership or limited partnership shall be transferred by deed to the converted entity."[236]
Revenue was the reason for that anomalous rule. The Florida Revenue Estimating Conference reasoned that allowing title to a converting partnership's real property to pass by operation of law would cost the state money.[237] That is because, under present law based on the aggregate theory, a converting partnership must transfer title to its real property by deed to the converted entity, which is a new entity. Under general law, that requires the converted entity to pay a documentary stamp tax in order to record the deed.[238] To assure that FRUPA was at least "revenue neutral," the House Committee on Finance and Taxation amended the bill to continue the requirement of a deed to transfer a converting partnership's real property to itself.[239] And thus is sausage made.
Such perverse treatment did not befall the rights of existing creditors of the converting partnership. Respecting the logic that the converted partnership is the same entity, the rights of existing creditors are not affected by the conversion. Specifically, FRUPA provides that, after the conversion, all obligations of the converting partnership continue as obligations of the converted entity and an action or proceeding pending against it may be continued as if the conversion had not occurred.[240] Florida adds, by way of emphasis: "Neither the rights of creditors of a converting partnership or limited partnership nor any liens upon the property of a converting partnership or limited partnership are impaired by a conversion."[241]
The Revised Florida Act expressly authorizes the merger of a general partnership with one or more general or limited partnerships.[242] The FRUPA "safe harbor" procedures are similar to those governing corporate mergers. The terms of the merger, and the manner and basis of converting the interests of the partners of each party to the merger into interests or obligations of the surviving entity, must be set forth in a plan of merger.[243] The plan must be approved by all the partners, unless the partnership agreement specifically provides otherwise for mergers.[244] The surviving entity may be either a general partnership or a limited partnership.[245]
If the "safe harbor" provisions of FRUPA are followed, the partners' post-merger personal liability is carefully spelled out in the Act. A general partner of the surviving entity is personally liable for all pre-merger obligations for which the partner was personally liable before the merger and all post-merger obligations incurred by the surviving entity after the merger; such a general partner is not personally liable for any pre-merger obligations of a party to the merger for which the partner was not personally liable before the merger.[246] A limited partner of the surviving entity is personally liable only for a pre-merger obligation for which he was personally liable as a general partner of a party to the merger.[247] The surviving entity is liable for all pre-merger obligations of every party to the merger, obligations which may be satisfied out of any of the surviving entity's property.[248]
The legal effects of a partnership merger under the Revised Florida Act mirror the effects of a corporate merger. On the effective date of the merger,[249] the separate existence of every party to the merger, other than the surviving entity, ceases,[250] and all obligations of every party to the merger become the obligations of the surviving entity.[251] Any action pending against a party to the merger may be continued as if the merger had not occurred, or the surviving entity may be substituted as a party to the action.[252]
FRUPA's provisions regarding title to property owned by the parties to the merger are like those applicable to a partnership conversion. All personal property owned by each of the merged partnerships vests in the surviving entity by operation of law.[253] But, as in the case of a conversion, and for the same reason, Florida does not follow the uniform rule with respect to real property owned by the merged partnerships.[254] Instead, FRUPA requires that title to such real property be transferred by deed to the surviving entity,[255] notwithstanding a contrary Florida rule governing the transfer of title to real property in a corporate merger.[256]
After a merger, the surviving partnership may file a statement of merger,[257] which must contain the name of each party to the merger and the name of the surviving entity.[258] Under RUPA, after a statement of merger is filed and, for real property, properly recorded, all property which before the merger was held in the name of another party to the merger becomes property held in the name of the surviving entity for the purposes of the partnership transfer rules.[259] Thus, after filing and recording a statement of merger, every general partner of the surviving entity has authority to transfer property, real or personal, held in the surviving entity's name, subject to the effect of a statement of partnership authority thereafter filed by the surviving entity.[260] Florida modifies the uniform rule by deleting any reference to real property of the surviving entity previously held in the name of another party to the merger.[261] The change presumably reflects the Florida requirement that title to real property owned by the parties to the merger must be transferred to the surviving entity by deed, rather than by operation of law.[262]
The Revised Florida Act has an effective date of January 1, 1996.[263] It is not, however, applicable to all partnerships as of that date. Because of the extensive changes to existing law, especially the rules governing the relations of the partners inter se, FRUPA provides for a delayed date with respect to its mandatory applicability to existing partnerships.[264]
Until January 1, 1998, FRUPA will govern only those partnerships formed after January 1, 1996, the Act's effective date,[265] unless the partnership elects to be governed by the Revised Act.[266] Partnerships formed under present law before January 1, 1996, will continue to be governed by the Florida UPA until January 1, 1998. At any time after January 1, 1996, an existing partnership may, in the manner provided in its partnership agreement or under the UPA procedure for amending the partnership agreement,[267] voluntarily elect to be governed by FRUPA.[268] After January 1, 1998, FRUPA governs all Florida partnerships.[269]
The rush to authorize so-called registered limited liability partnerships (LLPs) began with Texas in 1991.[270] Over thirty-five states have now adopted some form of LLP statute.[271] The impetus for protection from vicarious liability for torts committed by another partner grew out of the many lawsuits against national accounting firms and major law firms as a result of the savings and loan debacle of the late 1980s.[272] Lobbied for heavily on behalf of such professional partnerships, LLP laws seek primarily to limit the personal liability of a partner for malpractice committed by another partner.[273] The NCCUSL drafting committee considered proposing such legislation as a part of the Revised Uniform Act, but rejected the idea because, at the time, LLPs were still novel and there was not a national consensus as to their legitimacy.[274] In August, 1995, the Partnership Committee of the ABA Business Law Section approved a "Prototype" Registered Limited Liability Partnership Act (ABA Prototype Act) which integrates limited liability provisions directly into the Revised Uniform Act.[275] In response to the overwhelming embrace of LLP legislation by the various states in late 1995, NCCUSL appointed a new committee to draft optional limited liability provisions for adoption with RUPA.[276]
Although finally enacted as a part of the same bill as the Florida Revised Uniform Partnership Act,[277] the Florida LLP provisions are separate and independent of FRUPA.[278] Indicative of the haste with which the states have embraced LLP legislation, the Florida LLP provisions went into effect on July 1, 1995,[279] without any waiting period. Moreover, an existing Florida partnership may become an LLP without any notification to its present creditors or clients or other affected parties.[280]
To become a registered LLP in Florida, a partnership must file a registration statement with the Department of State.[281] The partnership must pay an annual registration fee of $100 for each partner whose principal residence is in Florida, with the total not to exceed $10,000.[282] The partnership's name must contain the words "Registered Limited Liability Partnership" or the designation "LLP" at the end.[283] A limited partnership may also become a registered limited liability partnership, using the designation "Ltd. LLP."[284]
Under the Florida statute, an LLP must carry liability insurance covering the errors, omissions, negligence, malpractice, and wrongful acts for which a partner's liability is limited.[285] The statutory "minimum coverage amount" of such insurance is $100,000 multiplied by the number of partners, up to a maximum of $3 million.[286] Many states' LLP statutes do not have an insurance requirement.[287]
Most of the early LLP statutes limited a partner's individual liability only in the case of torts committed by another person, such as the malpractice of another partner.[288] The recent trend, however, is to expand the limitation to cover other liabilities, and at least fifteen states now shield partners fully from individual liability for any and all partnership obligations, other than their own malpractice and other tortious conduct.[289]
The Florida statute[290] is of the more benign type. It provides:
(1) A partner in a registered limited liability partnership is not individually liable for obligations, or liabilities of the partnership, whether in tort, contract, or otherwise, arising from errors, omissions, negligence, malpractice, or wrongful acts[291] committed by another partner or by an employee, agent, or representative of the partnership while the partnership is a registered limited liability partnership.
(2) Notwithstanding any other provision of this act, a partner in a registered limited liability partnership is individually liable for:
(a) Any debts or obligations of the partnership arising from any cause other than those specified in subsection (1);
(b) Any errors, omissions, negligence, malpractice, or wrongful acts committed by the partner or any person under the partner's direct supervision and control in the specific activity in which the error, omission, negligence, malpractice, or wrongful act occurred; or
(c) Any debts for which the partner has agreed in writing to be liable.
The liability of the partnership entity is not affected by those limitations on the partners' individual liability.[292]
The Florida statute also provides that the liability of partners in an LLP "formed and registered" under the Florida LLP provisions must be determined solely by these Florida LLP provisions.[293] If a conflict arises between the laws of Florida and any other jurisdiction with regard to the individual liability of a partner in an LLP "formed and registered" in Florida, the statute provides that the laws of Florida shall govern.[294] That rule is binding on Florida courts,[295] but it may not be followed by courts in other states.[296]
An LLP that provides professional services regulated by a state regulatory agency remains subject to the agency's supervision, including disciplinary proceedings, in the same manner and to the same extent as an individual who is licensed to practice such a profession.[297] It is uncertain whether a Florida law firm may become an LLP. To remove any doubt, the Florida Supreme Court may be requested to approve the practice of law as an LLP and to modify The Florida Bar Rules accordingly.[298]
Before transacting business in Florida "as such," a foreign registered limited liability partnership must register with the Department of State as a foreign LLP.[299] The registration fee is the same as for a domestic LLP.[300] As a condition of registering in Florida, a foreign LLP must have liability insurance with the same minimum coverage amount as a registered Florida LLP,[301] even if no insurance is required under the law of the jurisdiction in which it was formed.[302]
Somewhat surprisingly, the Florida statute expressly provides that a foreign LLP's "organizational and internal affairs, including the liability of partners," is governed by the laws of the jurisdiction under which the foreign LLP is organized.[303] That means the partners in a New York LLP, registered and doing business in Florida, have no personal liability to Florida contract creditors, without regard to the parties' other contacts with Florida. In light of the much broader liability shield now available to LLPs in several other states, that choice of law provision is likely to foster a market in foreign LLPs, much to the detriment of Florida creditors.[304]
The Revised Uniform Partnership Act is a much needed updating of the law of partnership. It clarifies many of the old rules, enhancing certainty and predictability. Adoption of the entity theory simplifies the statutory implementation of many rules, including some that have not been substantively changed. The most significant substantive change, perhaps, is the complete restructuring of the partnership breakup rules, which, under the UPA, had long been a source of irritation and confusion. The revised rules governing the transfer of partnership property should lower transaction costs and enhance the certainty of title, especially with respect to real property held in the name of the partnership. The new conversion and merger rules will be greatly appreciated by those involved in such transactions. The new fiduciary duty rules, although criticized by some, are firmly rooted in traditional principles, while permitting a reasonable degree of private ordering. The recognition of limited liability partnerships is in keeping with the contemporary national trend.
Florida should benefit from its vanguard adoption of the Revised Uniform Act. It will be applauded by the state's business community and the commercial law bar. By improving efficiency in the formation and operation of partnerships, it will benefit the Florida economy. Being a uniform law, it will facilitate interstate activity by enhancing the familiarity and confidence of those dealing with Florida partnerships. Extensive nonuniform changes have been avoided, thereby optimizing those benefits. Its early adoption will also contribute to Florida's growing reputation for leadership in providing a hospitable legal environment for business. In sum, Florida will enter the twenty-first century with a thoroughly contemporary partnership law.
_______________________________
[*] Copyright 1995 by John W. Larson.
Return to text.
A NAME=FNT**>[**] Associate Professor, Florida State University College of Law. A.B., 1958, University of Michigan; J.D., 1964, University of Iowa. Professor Larson was the Assistant Reporter for the Revised Uniform Partnership Act and served on The Florida Bar Drafting Committee for the Florida Revised Uniform Partnership Act. The views expressed are those of the author and do not necessarily represent the views of the National Conference of Commissioners on Uniform State Laws or The Florida Bar. The author wishes to express his appreciation to Don Weidner for his helpful comments on a draft of this Article.
Return to text.
[1] Both acts were enacted as a part of 1995, Fla. Laws ch. 95-242. See infra note 4.
Return to text.
[2] The original Uniform Partnership Act (UPA) was promulgated by the National Conference of Commissioners on Uniform State Laws (NCCUSL) in 1914 and eventually adopted in every state except Louisiana. See Prefatory Note to UNIF. PARTNERSHIP ACT (1994), 6 U.L.A. 1 (1995). Florida adopted the UPA in 1972. See 1972, Fla. Laws ch. 72-108 (codified at FLA. STAT. §§ 620.56-.77 (1995)).
[3] In 1993, Montana and Wyoming adopted the 1992 version of RUPA. See Montana Uniform Partnership Act, MONT. CODE ANN. §§ 35-10-101 to -616 (1993); Wyoming Uniform Partnership Act, WYO. STAT. §§ 17-21-101 to -1003 (Supp. 1993).
[4] 1995, Fla. Laws ch. 95-242, § 13, 2150, 2160. The Revised Florida Act was introduced by companion bills in the 1995 Florida Legislature as Florida Senate Bill 1690 and Florida House Bill 2187. Most of the changes from the Revised Uniform Act were drafted by a Florida Bar Drafting Committee, a joint effort between the Business and Tax Law Sections. The committee was co-chaired by Philip B. Schwartz, of Miami, and Louis T.M. Conti, of Orlando. Anderson L. (Trey) Baldy III, of Tampa, was the committee reporter. Professor Larson was a member of The Florida Bar Drafting Committee.
[5] The LLP provisions were actually enacted twice by the 1995 Florida Legislature. See 1995, Fla. Laws ch. 95-242, §§ 1-12, 2150, 2152; 1995, Fla. Laws ch. 95-409, §§ 1-12, 3372, 3373.
The LLP legislation was introduced by companion bills as Florida House Bill 717 and Senate Bill 894. House Bill 717 was referred to the Commerce and Finance and Taxation Committees. FLA. H.R. JOUR. 56 (Reg. Sess. 1995). The Commerce Committee referred the bill to the Banking and Corporations Subcommittee, which recommended the bill favorably, with one amendment. FLA. LEGIS., HISTORY OF LEGISLATION, 1995 REGULAR SESSION, HISTORY OF HOUSE BILLS at 256, HB 717. On March 16, the Commerce Committee approved a Committee Substitute for HB 717. FLA. H.R. JOUR. 304 (Reg. Sess. 1995). That bill was then referred to the Finance and Taxation Committee, which recommended the bill favorably on April 18. Id. at 565. On April 27, CS for HB 717 was placed on the Consent Calendar and, with amendments, was passed by the House of Representatives by a vote of 115 to 1. Id. at 879. On May 2, the Senate substituted CS for HB 717 for CS for SB 894 and passed the bill, 38 to 0. FLA. S. JOUR. 673 (Reg. Sess. 1995). The enrolled bill was sent to the Governor on June 6 and became law without his signature on June 18, 1995. FLA. LEGIS., HISTORY OF LEGISLATION, 1995 REGULAR SESSION, HISTORY OF HOUSE BILLS at 256, HB 717; see 1995, Fla. Laws ch. 95-409. The effective date of that bill was October 1, 1995. 1995, Fla. Laws ch. 95-409, 3372, 3382.
On May 2, the same day the Senate passed CS for HB 717, Senator McKay moved to amend SB 2296 further by adding the LLP provisions. FLA. S. JOUR. 670 (Reg. Sess. 1995). As amended, SB 2296 passed the Senate on May 2 by a vote of 38 to 0. Id. at 673. Thereafter, on May 4, after the enactment of CS for HB 717 on May 2, the House of Representatives passed SB 2296, as amended to include both FRUPA and the LLP provisions, by a vote of 111 to 0. FLA. H.R. JOUR. 1283 (Reg. Sess. 1995). The enrolled bill was sent to the Governor on May 5 and became law without his signature on June 9, 1995. FLA. LEGIS., HISTORY OF LEGISLATION, 1995 REGULAR SESSION, HISTORY OF SENATE BILLS at 165, SB 2296; see 1995, Fla. Laws ch. 95-242. The effective date of the LLP provisions was July 1, 1995. 1995, Fla. Laws ch. 95-242, 2150, 2152.
The LLP provisions in the two bills were identical, except for their respective effective dates. Chapter 95-242 supersedes Chapter 95-409, having been enacted subsequently by the Legislature. Thus, the LLP provisions became effective July 1, 1995. See FLA. STAT. § 1.04 (1995); Id. at viii (Revisor's explanation in Preface). Return to text.
[6] See Robert R. Keatinge, George W. Coleman, Allan G. Donn & Elizabeth G. Hester, Limited Liability Partnerships: The Next Step in the Evolution of the Unincorporated Business Organization, 51 BUS. LAW. 147, 148 (1995); ABA COMMITTEE ON PARTNERSHIPS AND UNINCORPORATED ORGANIZATIONS, 5 STATE LIMITED LIABILITY COMPANY & PARTNERSHIP LAWS § 1 (Michael A. Bamberger & Arthur J. Jacobson eds., 1995) [hereinafter ABA GUIDE TO LLPS]. The latter contains an excellent commentary on LLPs generally, written by Elizabeth G. Hester, as well as the text of the various state LLP statutes. See generally ALAN R. BROMBERG & LARRY E. RIBSTEIN, LIMITED LIABILITY PARTNERSHIPS AND THE REVISED UNIFORM PARTNERSHIP ACT (1995) [hereinafter BROMBERG & RIBSTEIN ON LLPS].
Return to text.
[7] The exculpatory provision itself usually amends the state's version of UPA § 15, which provides that partners are personally liable for the partnership's debts and obligations. See, e.g., 6 Del. Laws § 1515 (1995); IOWA CODE § 486.15 (1995); N.C. GEN. STAT. § 59-45 (1995).
Return to text.
[8] See, e.g., LA. REV. STAT. § 9:3431 (1995); MICH. COMP. LAWS § 449.46 (1995); 15 PA. CONS. STAT. § 8204 (1994). For a general discussion of the structure of LLP provisions, see ABA GUIDE TO LLPS, supra note 6, § 2.
Return to text.
[9] Since the Revised Florida Act is, for the most part, identical to the Revised Uniform Act, the discussion and citation herein will be to FRUPA. Material nonuniform Florida amendments will be discussed with appropriate citation to the Revised Uniform Act.
[10] The Uniform Partnership Act § 6 provides:
[11] Florida provides for the registration of partnerships with the Department of State. See FRUPA § 105(1). Registration is voluntary, in the sense that it is not required by law, but is a condition precedent to the filing of other "statements," such as a statement of authority. See id. § 105(4). Therefore, registration is required of partnerships seeking the benefits of filed statements. See discussion infra notes 76-97, 202-09, 219-21, 257-62 and accompanying text. Registration is a nonuniform Florida provision.
Return to text.
[12] See RUPA § 202, cmt. 1.
Return to text.
[13] See id. § 202, cmt. 2. UPA § 6(2) expressly provides that the UPA applies to limited partnerships unless otherwise provided by the Revised Uniform Limited Partnership Act (1976) With The 1985 Amendments, 6A U.L.A. 1 (1995) (RULPA). RUPA § 202(b) provides no such exception. Accord FRUPA § 202(2).
Return to text.
[14] See RULPA § 1105. In light of that section, UPA § 6(2), providing that limited partnerships are governed by the UPA, has not been carried over to FRUPA. The Revised Florida Act thus more properly allows RULPA to link FRUPA and RULPA. For clarity, the Florida RULPA has been amended to read: "In any case not provided for in this act [RULPA], the provisions of the Uniform Partnership Act the Revised Uniform Partnership Act, as applicable, and the rules of law and equity shall govern." FLA. STAT. § 620.186 (1995) (as amended by 1995, Fla. Laws ch. 95-242, § 22, 2150, 2189). The new text is intended to afford existing Florida limited partnerships the same deferred applicability date established by 1995, Fla. Laws ch. 95-242, § 14, for existing general partnerships, absent an election to be governed earlier by FRUPA. See infra note 266 and accompanying text.
Return to text.
[15] FRUPA § 202(3).
Return to text.
[16] Id. § 202(3)(c). The sharing of profits is cast as a rebuttable presumption, rather than as prima facie evidence. Compare UPA § 7(4). No substantive change is intended. See RUPA § 202, cmt. 3. One of the enumerated relationships covers a lender's receipt of profits under a shared appreciation mortgage. See FRUPA § 202(3)(e).
Return to text.
[17] Id. § 202(3)(a).
Return to text.
[18] Id. § 202(3)(b).
Return to text.
[19] See JUDSON A. CRANE & ALAN R. BROMBERG, LAW OF PARTNERSHIP § 3, at 18-25 (1968).
Return to text.
[20] See Commissioners' Prefatory Note to the UNIF. PARTNERSHIP ACT (1914), 6 U.L.A. 7 (1969); see also CRANE & BROMBERG, supra note 19, § 3, at 26-29.
Return to text.
[21] See MELVIN A. EISENBERG, AN INTRODUCTION TO AGENCY AND PARTNERSHIP 38-39 (2d ed. 1995); CRANE & BROMBERG, supra note 19, § 3, at 26-29.
Return to text.
[22] FRUPA § 201.
Return to text.
[23] See infra part II. G.
Return to text.
[24] FRUPA § 306(1).
Return to text.
[25] See Simplification of Entity Classification Rules, I.R.S. Notice 95-14, 1995-14 I.R.B. 7 (Mar. 29, 1995), in which the IRS proposes to discard the complex entity classification system currently used to determine whether an unincorporated business entity, such as a limited partnership or a limited liability company, is to be classified as a "partnership," entitled to pass-through taxation, or as an "association," which must pay tax at the entity level as a corporation. Many unincorporated entities would like to be classified as a partnership to avoid two-tiered taxation. The proposal has been well received. See, e.g., Thomas E. Rutledge, IRS Considers End to Kintner Analysis of Unincorporated Associations, LLC ADVISOR (CCH), Apr. 1995, at 4; Daniel Shefter, Check the Box Partnership Classification: A Legitimate Exercise in Tax Simplification, 95 TAX NOTES TODAY, Apr. 13, 1995, at 72-44; see generally Daniel S. Goldberg, The Tax Treatment of Limited Liability Companies: Law in Search of Policy, 50 BUS. LAW. 995 (1995).
Return to text.
[26] Most of the UPA rules may be varied by agreement of the partners. See, e.g., UPA § 18 ("The rights and duties of the partners in relation to the partnership shall be determined, subject to any agreement between them, by the following rules . . . .").
Return to text.
[27] FRUPA § 103(1).
Return to text.
[28] Id.
Return to text.
[29] RUPA § 103(b). All nine exceptions are clearly identified and conveniently enumerated in that section.
Return to text.
[30] See FRUPA § 103(2)(g) (providing that the partnership agreement may not change the notice provisions contained in FRUPA §§ 902(6) and 905(6), themselves additional nonuniform requirements for the Article 9 "safe harbor" for partnership conversions and mergers); infra notes 222-24 and accompanying text. Articulating those notice requirements as immutable rules misperceives the concept of a "safe harbor." As FRUPA § 908 makes clear, the Article 9 "rules" are not exclusive, and partnerships may be converted or merged in any other manner provided by law. The benefit of complying with the "safe harbor" requirements is merely the comfort of knowing that the transaction is valid and has the legal consequences set forth in the Act.
[31] FRUPA § 103(2)(d).
Return to text.
[32] See UPA § 31(2); FRUPA § 602(1). As under UPA § 38(2)(a), a partner who has wrongfully withdrawn in contravention of the agreement is liable for any damages caused by breach of the agreement. See FRUPA § 602(3).
Return to text.
[33] FRUPA §§ 103(2)(a)3, (b), (c), discussed infra notes 122-24, 132, 135 and accompanying text.
Return to text.
[34] FRUPA § 103(2)(h).
Return to text.
[35] The Revised Uniform Act thus provides off-the-rack standard contract terms that may be utilized by the parties without the cost of further negotiation and drafting.
Return to text.
[36] One of the primary benefits of a "uniform" law is that a richer body of case law will be developed construing its meaning, especially those terms that suffer from some ambiguity. Uniform language is also the subject of scholarly debate, leading to a better understanding of its nuance of meaning.
Return to text.
[37] The Revised Florida Act authorizes a partnership to file the following statements: 1) a statement of partnership authority under FRUPA § 303; 2) a statement of denial under FRUPA § 304; 3) a statement of dissociation under FRUPA § 704; 4) a statement of dissolution under FRUPA § 805; and 5) a statement of merger under FRUPA § 907. The term "statement" is defined to mean those statements, or an amendment or cancellation thereof. FRUPA § 101(13). The filing of such statements is entirely voluntary. See, e.g., id. §§ 105(1), 303(1) (statement of partnership authority).
Return to text.
[38] See generally Donald J. Weidner & John W. Larson, The Revised Uniform Partnership Act: The Reporters' Overview, 49 BUS. LAW. 1, 34 (1993) [hereinafter Reporters' Overview].
Return to text.
[39] See RUPA § 105, cmt. 1.
Return to text.
[40] See infra note 43 and accompanying text.
Return to text.
[41] See FLA. STAT. § 689.045 (1995), discussed infra notes 98-100 and accompanying text.
Return to text.
[42] The Revised Florida Act § 105(1) provides that a partnership "may" file a registration statement with the Department of State. A "registration statement" is not a "statement" within the meaning of that term. Compare FRUPA § 101(11) ("registration" or "registration statement") with § 101(13) ("statement").
Return to text.
[43] FRUPA § 105(4). A "statement" may be filed with the Department of State only if the partnership has filed a registration statement, except those statements provided for by FRUPA § 304 (statement of denial) or § 704 (statement of dissociation). Id. § 105(4). Thus, a statement of dissolution may not be filed under § 304 unless the partnership had been previously registered.
[44] FRUPA § 1055(1). The fee for filing a UCC financing statement (Form UCC-1) is also $25. FLA. STAT. § 15.091(1)(a) (1995).
Return to text.
[45] See FRUPA § 105(8).
Return to text.
[46] Id. § 1055(1)(i).
Return to text.
[47] FLA. STAT. § 689.045 (1995), discussed infra notes 98-100 and accompanying text.
Return to text.
[48] FRUPA § 203.
Return to text.
[49] See UPA § 25(1). Tenancy in partnership reflects the aggregate theory of partnership. See Reporters' Overview, supra note 38, at 28.
Return to text.
[50] UPA § 25(2)(a).
Return to text.
[51] Id. §§ 25(2)(b), (c). By defining the "incidents of this tenancy" in a manner that denies individual partners the usual incidents of ownership, the UPA reaches an entity result masquerading in aggregate terms. For example, a partner may not grant a security interest in specific partnership property to a personal creditor. In re O'Connell, 119 B.R. 311, 314 (Bankr. M.D. Fla. 1990).
Return to text.
[52] FRUPA § 501. The Revised Uniform Act § 501 provides: "A partner is not a co-owner of partnership property and has no interest in partnership property which can be transferred, either voluntarily or involuntarily." The Florida modification merely emphasizes the change from the UPA; no substantive change from RUPA is intended.
Return to text.
[53] "The only transferable interest of a partner in the partnership is the partner's share of the profits and losses of the partnership and the partner's right to receive distributions." FRUPA § 502. A "distribution" is "a transfer of money or other property from a partnership to a partner in the partner's capacity as a partner . . . ." Id. § 101(4). A partner's "transferable interest" is to be distinguished from the partner's "partnership interest." The latter means "all of a partner's interests in the partnership, including the partner's transferable interest and all management and other rights," such as a partner's information rights. Id. § 101(8) (emphasis added). Those rights, including the right to participate in management, are not transferable, but are conferred only if the transferee is admitted as a partner.
Return to text.
[54] FRUPA § 502, second sentence, which reads: "A partner's interest in the partnership is personal property" (emphasis added). That is a slight change from RUPA § 502, which reads, "The only transferable interest of a partner in the partnership is the partner's share of the profits and losses of the partnership and the partner's right to receive distributions. The interest is personal property." A partner's interest in the partnership is not the same as her transferable interest. See supra note 53. The Florida comment indicates the change was intended to clarify that a partner's entire interest in the partnership is personal property, not merely her transferable interest. The clarification seems unnecessary, especially in light of UPA precedent, and is out of place in a section entitled "Partner's transferable interest in partnership."
Return to text.
[55] FRUPA § 204(1)(a).
Return to text.
[56] Id. § 302(1).
Return to text.
[57] Id. Under UPA § 8(3), real property may be acquired in the partnership name, but the Act is silent regarding personal property. See RUPA § 302, cmt. 2.
Return to text.
[58] FRUPA § 204(2). Therefore, the deed or certificate of title by which the partnership acquires the property must indicate the correct name of the partnership. Otherwise, reliance on the record title is unwarranted.
Return to text.
[59] FRUPA § 204(1)(b).
Return to text.
[60] UPA § 8; see, e.g., Standring v. Standring, 794 P.2d 1089, 1090 (Colo. App. 1990).
Return to text.
[61] FRUPA § 204(3) (continuing the presumption in UPA § 8(2) that "property acquired with partnership funds" is partnersh(1) A partnership is an association of two or more persons to carry on as co-owners a business for profit.
(2) But any association formed under any other statute of this state . . . is not a partnership under this [A]ct . . . ; but this [A]ct shall apply to limited partnerships except in so far as the statutes relating to such partnerships are inconsistent herewith.
(1) Except as otherwise provided in subsection (b), the association of two or more persons to carry on as co-owners a business for profit forms a partnership, whether or not the persons intend to form a partnership.
(2) An association formed under a statute, other than this [A]ct, a predecessor statute [i.e., the UPA], or a comparable statute of another jurisdiction is not a partnership under this [A]ct.